Credit Card Processing: The Working Mechanism Behind The Entire Process

Having the close acquaintance about the inner-workings of the credit card/bankcard system isn’t obligatory, but then there is no wrong in having a little bit knowledge about it. Knowing how things really work is a fine approach, as fees are incurred sometimes at one or the other level.

Credit Card Processing

The major components in the entire process involve the following:

  • Credit card authorization
  • Key players
  • Credit card settlement and clearing

Credit Card Processing services are so timely and quick that in a few seconds, information about the transaction is transmitted from the terminal to a processor. Then, these details are passed through your card network to your issuing bank. Once all this takes place, your issuing bank sends an authorization back to the processor through the network.

In the complete system, getting authorization for a transaction stays the initial step. Before the sales get deposited in your bank account of your business, it’s essential that the authorizations are completed first. Authorization and settlement are the two main processes of the transaction. If ever this takes place, a failure be it partial or complete, it directs to increased costs or sales not deposited.

The Key Players:

The main players that are involved in the settlement and authorization include:

  • Service Provider
  • Customer
  • Issuing Bank
  • Acquiring Bank
  • Card Associations (Visa and MasterCard)

Now let’s talk about each player one by one.

Cardholder/Customer:

This terminology refers to the person who acquires a debit or credit card from the issuing bank. The debit or credit card is then presented to the mercantile as payment for the products or services.

The Service Provider:

The service provider is the one that is involved in the sale of products or services. It can also be assumed that it is a business that permits credit card acceptance as well as debit cards.

Bank Of The Service Provider:

People also know this term as the acquiring bank. It is because it generates and maintains accounts and allows businesses to accept debit and credit cards. Furthermore, such banks offer tools and software to accept cards, promotional materials, and other significant elements required to accept card to the merchants.

Issuing Bank:

The issuing bank offers credit cards to consumers. It is vital to acquaint that the issuing bank is a part of the card associations. Such banks disburse the banks for the purchases or sales made by the cardholders. Reimbursing an issuing bank as per the standards of card agreement is the cardholder’s responsibility.

Card Associations:

As Visa and MasterCard are not banks, they serve as a clearing house and guardian for the card brand. Also, they watch the community of MSPs, ISOs, and monetary institutions that work together to support electronic payments and credit or debit card processing.

So, that was all about the significant parameters of credit or debit card processing. To keep the transparency in the Credit Card Processing system, keeping these significant points in mind is quite useful.

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